Capital Goods - October 2010

Foray for Hollywood

By Scott Mooneyham

Perhaps Hollywood could turn it into a movie: A Cinderella-like character, a small-town girl with big dreams, is swept up in the glitz and glam of big city life. She meets dashing men, ball players on their way to the big leagues and dance instructors who can’t seem to stay in their shirts. She hangs out in sparkling mansions built by robber barons and seaside cottages where waves crash at the doorstep. Suddenly her suitors decide she’s not so attractive anymore. A cousin who lives down South has become the talk of the town. A next-door neighbor is more attractive. One by one, the suitors move on. She buys new clothes but still doesn’t turn heads. Then an old acquaintance accuses her of stealing to buy them. The inhabitants of her small town begin to talk, wondering what happened to the girl they used to know.

Our character is North Carolina, her new clothes the series of tax breaks that state lawmakers and governors have heaped on the film industry to try to regain the glory of landing film productions like Bull Durham, Dirty Dancing and Last of the Mohicans. It’s not certain how the script will end. What is clear is that the state’s ramped-up film incentives are becoming more controversial, even as other states continue to best North Carolina with bigger and better giveaways.

In July, Gov. Beverly Perdue put her signature to expanded film incentives. It was the second straight year that she and the legislature had upped the ante. The latest changes mean that individual film productions could qualify for a tax break worth up to $20 million, raising an earlier cap of $7.5 million. Combined with the 2009 changes, producers can write off up to 25% of their in-state spending. The tax credit is refundable, meaning that a film or television production company that qualified for more money than they owe in state taxes would receive the difference, a check from state taxpayers.

Perdue hadn’t even signed the legislation into law before she began to complain that it wasn’t enough. Louisiana had no caps and, unlike North Carolina, didn’t prohibit the salaries of big-name stars from counting toward the total. Georgia’s tax breaks were bigger, too. North Carolina officials point to figures showing the film industry bringing more than $326 million in direct spending to the state over the past three years. But a quick look at Louisiana’s film office website shows that state brimming with productions, 12 films and six television shows in 2009 and 2010. A dozen more films were in pre-production mode this year. North Carolina? It could always claim One Tree Hill.

By the end of the summer, the film incentives weren’t looking just ineffective. They suddenly seemed politically dangerous. Business-recruiting incentives have always had their critics on both sides of the political spectrum. Liberals call them corporate welfare; conservatives say they mean government picks winners and losers in the economic marketplace. In August, the film incentives became fodder in the battle for control of the North Carolina legislature. A limited-government-advocacy group called Real Jobs NC — backed by Raleigh businessman/GOP activist Art Pope and drug-research exec Fred Eshelman — began peppering the districts of incumbent Democratic legislators with mailers critical of their support of film incentives. “Welfare for Hollywood has got to stop,” one read. Another claimed that lawmakers had voted to “give Hollywood fatcats [sic] up to $20 million of our tax dollars for each movie they produce in NC.”

Former state Supreme Court Justice Bob Orr, a harsh critic of incentives, says legislators shouldn’t be surprised that their support of film tax breaks is being used against them. His North Carolina Institute for Constitutional Law has sued to try to stop the state from providing business-recruiting incentives, and he says film incentives are beginning to gain traction as a political issue because voters are starting to understand them. “Of all the incentives, film incentives are the single worst. Most of the money flows out of state.”

But if all politics is local, incentives politics is even more so. Politicians poll. They know that voters are happy when a big manufacturing plant opens or stays put after threatening to close. If it’s in their backyard, worries about tax breaks melt away. When legislators debated the film incentives, it came as no surprise that Republican state Rep. Danny McComas led the charge. He’s from Wilmington, the epicenter of the state’s film industry since Dino DeLaurentis opened a studio there in 1983. “This is about jobs. This is about keeping what we have,” he says.

It may not matter what McComas or Orr believe. They probably won’t be writing the final scene of our movie. That task may fall to voters.